Baoshan Iron and Steel (Baosteel) forecasts to produce 46.36 million tons of steel and 43.43mn mt of iron in FY2020 (Jan-Dec). The company produced 11.71mn mt steel and 11.11mn mt of iron in the first quarter of 2020 (Q1).
Baosteel reported commodity billet sales of 10.05mn mt and plates and strip sales of 9.51 mn mt in the first quarter. The company’s average selling price for steel plates and strips in Q1 was CNY4,126/mt ($583.83/mt), while the overall average for steel products was CNY4,215/mt.
In 2019, Baosteel’s produced 46.87mn mt steel, which was marginally up from a year ago.
|Baosteel’s production in 2019 (mn mt)|
The company exported 3.62mn mt of steel products in 2019. South Asia and Southeast Asia was the top overseas destination for Baosteel’s products with 45.54pc share of total exports, followed by East Asia and Australia at 23.81pc, Europe and Africa 20.96pc and Americas 9.69pc.
Baosteel’s gross margin in 2019 for hot rolled steel and cold rolled steel dipped to 10.7pc and 10.2pc from 19.2pc and 16.3pc, respectively from the prior year. In finished steel products, Baosteel’s gross margin for plates and strips and pipes dipped to 11.1pc and 11.9pc from 18.0pc and 12.7pc, respectively from the prior year. The company margins were hit by a sharp rise in the price of imported iron ore and a decline in domestic steel plate prices.
Baosteel expects a significant but short-term impact of the pandemic on the steel industry and a limited impact over the long-term. The company expects the pandemic to impact Baosteel’s performance in the second quarter. China’s domestic demand will remain stable fuelled by infrastructure, while demand from real estate is expected to slow and manufacturing demand is likely to remain stable, according to Baosteel’s annual report.
The company expects a global recession and a sharp shrinkage in overseas demand and to mitigate this situation Baosteel plans to actively expand its sales in the domestic market. The global spread of the pandemic will have limited effect as Boasteel’s export ratio is around 8pc. However, the reduction of exports of downstream domestic companies such as home appliances and machinery will weaken demand in China.
Baosteel has more than 50pc market share in China’s automotive steel sector with long-term contracts with downstream companies. Baosteel will continue to maintain its market share with the production and market development of ultra-high-strength steel in the automotive sheet segment.
The release of capacity from domestic capacity replacement projects will pressure the market and the overall oversupply trend for steel will become more obvious in the short term. The price difference at the purchase and sales front is squeezing steel industry’s profitability.
On the raw material front, Baosteel depends on the import of iron ore from Brazil and Australia and expects a relatively limited impact of the pandemic on ore supplies.
Baosteel group’s production efficiency is also negatively impacted by the location of its main manufacturing bases in China’s first-tier cities. The company faces stringent environmental protection policies and regulations. Baosteel plans to transform the Yancheng Iron and Steel project into a high-quality steel base for bar, wire and tube long products to enhance its presence in the long steel product segment. The company has 112 smart upgrade projects underway at its plants which focus on intelligent, unmanned and centralised manufacturing.
Baosteel’s net profit for Q1 dropped by 43.63pc to CNY1,536mn while the company’s operating income dropped by 8.27pc to CNY59,973mn.
For FY2019, Baosteel’s reported a net profit of CNY12,423mn, down 42.08pc from a year ago while the company’s operating income dropped by 4.42pc to CNY291,594mn.
Baosteel is one of the world largest steelmakers with four integrated steel manufacturing bases – Shanghai Baoshan, Wuhan Qingshan, Zhanjiang Dongshan, Nanjing Meishan and other steel manufacturing bases.